Rising wages and prices land councils with their own cost-of-living crisis | Inflation

IInflation weighs heavily on Nazia Rehman’s mind. Not only has the Wigan councilor been approached by dozens of residents unable to pay their energy bills, but some of the town’s community centres, tasked with helping the same people, are now facing similar problems.

“They say that they are no longer sustainable because of the risk that they will not be able to pay their expenses,” she says. “They are our eyes and ears – people use them and our community values ​​them highly. It would be a disaster if they left.”

As a councilor responsible for finance and resources in the Greater Manchester city of 320,000, she has seen first-hand how the demand for services is skyrocketing just as the price of providing them rises dramatically thanks to the cost of living crisis.

Wigan City Council has seen its own energy costs rise by around 115%, making it costly to keep buildings on which the homeless, elderly and many families rely on open, just as energy levels are expected to rise. of poverty increase considerably.

“As an organization, we face a huge risk,” he says. “And it’s not just financial; now it is human, because people depend on us”.

Rehman’s concerns are an indication of the inflationary pain that is tearing at the budgets of local authorities. Councils across Britain are facing increasing challenges as the cost of living crisis spreads across the country. Higher inflation rates for at least three decades are driving a sharp rise in the cost of the raw materials, labor and services that must be purchased to provide utilities.

As well as the impact on energy costs, Rehman says contractors working on his building projects have asked for an extra £1m in one scheme and an extra £600,000 in another as the price of materials skyrockets. It doesn’t help that the council’s finances are already on the brink of bankruptcy after a decade of cuts that left the city among the hardest hit by austerity: £160m has been cut from its budget since 2010.

“It’s austerity on the sly,” she says. “We are in a crisis. But after a decade of cuts, after the pandemic and the unfolding crisis in Ukraine, it’s very, very difficult for us to respond.”

Government figures show that councils and the public sector collectively buy more than £290bn worth of materials and services (from road sand to school meals) from private companies and spend billions more on staff salaries and energy bills for city hall buildings.

The Government Institute says local authorities are on track to have between £800bn and £2bn out of pocket as a result of inflation that is higher than expected when the chancellor Rishi Sunak set funding limits in his fall spending review.

Even before taking inflation into account, the Local Government Association estimates that Westminster’s allocation falls short of requirements by at least £1bn as councils face mounting pressure from an aging population. and an economy still battling Covid.

Then there are the salaries. with inflation forecast to peak near 9% Later this year, fueled by rising global energy prices after the Russian invasion of Ukraine, wage disputes are coming to the surface as wages fail to keep pace. Municipalities and the public sector in general are suffering the biggest cuts in real terms. Garbage collectors went on strike in CoventryGlasgow and Brighton, and unions say civil servants could take industrial action after the government announced a 3% cap on payment In the past week.

Despite the pressures, Sunak has suggested that efficiency gains should be sought to finance any additional public spending pressure. He believes that expansionary budgets are already in place for the public sector, while tax cuts should now be prioritized over further growth in state spending.

To drive home the point, ministers last week launched a new cabinet committee on efficiency and value for money, saying £5.5bn could be saved, with the money then pumped back into public services.

But with councils already stretched thin by a decade of austerity, this could undermine Boris Johnson’s promise to “level out” the country. This is risky for the Conservatives with local elections due next month.

In Warrington, Cathy Mitchell, deputy leader of the Labour-led council, says few efficiency savings can be found after a decade of cutbacks. With its own bus network to operate, the council has been hit by higher fuel costs after diesel prices hit a record high, and competition from the private sector on payment means it is struggling to retain to drivers.

“The ripe fruit left years ago. We started with austerity in 2010, so 12 years later it’s a bit cheap to say ‘Let’s look for efficiencies’. We have lost a fifth of our staff since the austerity began. The people left behind are doing a lot more with a lot less,” she says.

Councilor Ian Ward, on site
Councilor Ian Ward, Leader of Birmingham City Council: “It’s pressure from both ends.” Photograph: Andrew Fox/The Observer

A government spokesman said cost-of-living support was being made available to families across the country. Councils in England will also have access to £54.1bn in grants, an increase of £3.7bn from the previous year, “in recognition of their vital role in providing essential services and supporting some of the most vulnerable people in England.” our communities.”

In Birmingham, council leader Ian Ward has been convening local charities to discuss a coordinated response to rising costs of living. As Europe’s largest local authority, with a budget of over £3bn a year and spending over £200m to host this year’s Commonwealth Games in the city, the council is very aware that inflation is affecting your finances.

“I am concerned about the impact it will have on families in Birmingham, and charities are in a similar position,” says the Labor councillor. “They are on the sharp end of this. As demand increases, they will have a hard time meeting it and will need more funding. It’s pressure on both ends.”

The council set its budget assuming inflation would be 2% this year, with wage growth of 2.5%. “Now we know that inflation is going to be much higher than that, and that will certainly be reflected in wage demands as well,” he says, adding that the government needs to recognize this problem and increase funding for councils.

“It’s not just increased costs; it is the growing demand for services as more and more people find themselves in difficulty.”

There are ways tips can compensate for shrinkage. They have more financial muscle in negotiations with suppliers and can achieve economies of scale not available to households, meaning they could face lower rates of inflation than consumers. Many, including the one in Birmingham, agreed to 12-month fixed contracts with power providers before prices skyrocketed.

    Gazprom logo
Several local authorities are considering pulling out of supply contracts with Russia’s Gazprom. Photograph: Reuters

Others are not so lucky. Several local authorities are exploring ways to get out of contracts with Gazprom, the Russian state-owned energy giant, following Vladimir Putin’s invasion of Ukraine. Public sector bodies are estimated to have bought around £106m of power from Gazprom since 2016, according to data provider Tussel.

Contract breaking is unlikely to come without cost. In Portsmouth, the council hopes to face early departure charges over £100,000while the recent sharp rise in global energy prices means replacing your existing deal could cost upwards of £300,000.

Slough City Council has forecast that its energy costs could rise by over £3m by 2025 as petrol prices soar, while three Scottish councils tayside bills are likely to rise by £7m this year.

Andrew Burns of the Chartered Institute of Public Finance and Accounting, which represents public accountancy professionals, says the cocktail of risks facing boards comes just as requests for their services surge.

“A pound is buying less, but the demand is increasing. I hate to use the phrase, but it’s a perfect storm of uncertainty and financial challenges going in the wrong direction.”

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